PERNOD RICARD was catapulted up the market share rankings of drinks groups yesterday after winning the Swedish government's auction of Vin & Sprit, owner of Absolut vodka, with a bid of €5.62 billion.
It outbid Bacardi, Fortune and a Swedish private equity group to secure one of the world's best-known drinks brands.
The acquisition propels Pernod from fourth to second position in the US, the world's biggest and most profitable spirits market. It will give the French group a 14 per cent share. Diageo, the market leader, has 26 per cent.
But concerns that Pernod might be paying too high a price sent its shares down 4.3 per cent to €65.16. In contrast, Fortune had surged 8 per cent to $68.94 by midday in New York.
Absolut was only launched in 1979. It is produced at Åhus, a village in southern Sweden, and its ultimate owner is the state. Absolut's marketing emphasises the purity, achieved by using Swedish winter wheat and water from aquifers, as well as a continuous distillation process.
Most analysts regarded the price paid by Pernod as full, given recent estimates for V&S of $6 billion to $7 billion. But the acquisition of V&S "was never going to be done at an accessible price", said Erwan Rambourg, analyst at HSBC.
"Although the price is high, the market may give Pernod Ricard the benefit of the doubt given the company's strong mergers and acquisitions track record."
Pernod will borrow €5.8 billion to fund the deal, which includes the absorption of €346 million of net debt, through a syndicated loan, underwritten by six banks.
This will push pro-forma net debt to six times earnings before interest, tax, depreciation and amortisation.
The company expects to make annual cost savings of €125-€150 million and said the deal would lower its tax rate.
As well as Absolut, V&S owns the Level vodka, Cruzan rum, Plymouth gin and FRIS vodka brands. Pernod is understood to be keeping the rum brand but will sell Plymouth gin.
